LSI buys OnStor, VCs take Bath

In a continuation of the busy storage industry M&Aseason LSI has snapped up midmarket NAS vendor ONStor for $25 million in cash. WhileI'd consider selling DeepStorage Labs for $25 million a success; the venture capitaliststhat put over $130 million into OnStor over its 9 year life it was just a wayto get away with something.

To me this is just another indication of how hard it is tomake money in the midmarket NAS business. On the one hand midmarket NAS vendors have to convince SMB customersthat their products are worth the extra cost over prosumer NAS boxes from Buffalo,drive vendors Seagate and Western Digital, along with network vendors dLink andNetgear not to mention EMC subsidiary Iomega.

Once they've cleared that hurdle, and entered the midmarket,they have to convince the guy running 10-100 Windows and/or Linux servers thathe needs a dedicated NAS to replace the general purpose server he's been usingas a file server and that he shouldn't buy the Celerra or NetApp filer all theenterprise folks are buying or a Windows Storage Server box from Dell or HP.

OnStor also tried for years to sell NAS gateways, whichmakes sense to engineering types after all you're going to need block storageso why not use a gateway in front of it and have a single pool of storage. Ofcourse the people that think that way are the same ones that will slap a serverrunning OpenNAS or NexentaStor in front of their Clariion rather than buy agateway.  Most NAS customers want theirappliances to come with storage so they have one throat to choke when it doesn'twork.OnStor isn't the only midmarket NAS vendor that's fallen onhard times.  NetApp gave up on theStorVault line, Reldata fired their CEO a few months ago and poor Snap is on itsumpteenth owner having wasted all the name recognition they had from the dayswhen NAS meant NetApp, Auspex or Snap.

With OnStor LSI does get a decent NAS OS with a global namingsystem and failover clustering on their Bobcat line and the newer Panteras thatrun NexentaStor for ZFS with iSCSI for block storage.  Hopefully they'll be able to take advantageof the volume their Enginio block storage systems, which by the way make up thebulk of IBM's low end to midrange storage portfolio, to deliver NAS systems andmake a buck.

At $25 million it may be a good deal for LSI but thewaitresses on Sand Hill Road will take yet another hit on their tips.